Malta: Offshore Business Sectors
Maltese banking is conducted according to the Banking Act 1994 (for credit institutions aka commercial banks) and the Financial Institutions Act 1994 (for non-lending institutions, mostly meaning foreign exchange bureaux). This legislation conforms to current EU banking directives.
'International Banking Institutions', seven of which were licensed as offshore companies under the Malta International Business Activities Act 1988 now have to convert to 'credit institution' status under the Banking Act. Incoming banks are now licensed only under the Banking Act. With the gradual abolition of exchange controls, there now remains little distinction between 'international' and 'local' banks, or between 'offshore' or 'onshore' banks.
Maltese and foreign banks are supervised by the Malta Financial Services Centre; minimum capital for a new bank is EUR5 million. Foreign banks may operate through branches, but are still subject to supervision by the MFSC.
A new organisation to promote Malta's financial services sector to international investors was officially launched by the government in May 2007.
The new non-profit body, branded Finance Malta, centralises promotional activities previously carried out by the Malta Financial Services Authority and private sector organisations.
Parliamentary Secretary Tonio Fenech noted that financial services were playing an increasingly important role in the Maltese economy, accounting for about 12% of the country's gross domestic product. The financial sector’s gross added value component reached EUR208 million by the end of 2006, representing added value to the tune of EUR40,000 per employee, Fenech added. Meanwhile, the industry's productivity grew by 37% in 2006, he revealed.
In June 2008, the IMF highlighted that Malta's banking system was well-placed to weather the global financial turmoil. The IMF report said that banks have healthy liquidity positions and a good funding profile rooted in domestic retail deposits, according to the report. Additionally, they appear to have no direct exposure to US subprime mortgage-based assets.
As a member of the EU, Malta is actively strengthening its national and cross-border crisis management framework in the light of lessons from the recent international financial turmoil, the IMF found.
Financial services are playing an increasingly important role in the Maltese economy, accounting for about 7.5% of the country's gross value added in 2010, representing added value to the tune of EUR66,000 per employee.
By the end of 2010, the Maltese banking sector had grown considerably, consisting of 25 credit institutions (with a total of 136 offices and branches) with three of these being majority Maltese-owned. The other 22 are foreign credit institutions with a physical presence in Malta. Of these, 14 are from EU countries, six from non-EU countries and another two are branches from non-EU countries. By the end of 2012, there were 27 credit insitutions in Malta.
The Maltese government has set a target of 2015 for the jurisdiction to become one of the most important financial centres in the region.
The Commonwealth Bank of Australia was one of the first Australian banks to take advantage of the opportunities presented by Malta, with its CommBank Europe Ltd unit, holder of a Maltese banking licence since August 2005, becoming one of the island's largest financial institutions. CommBank Europe had $1.3 billion in capital and had $4.7 billion in assets in 2006.
For the Australian banks, it is the existence of the favourable double tax treaty between Malta and Australia that is a major cause of their interest in the jurisdiction. The Australian reported that CommBank Europe's Maltese operation, in combination with lower tax rates in New Zealand, Singapore and Britain, contributed to a 150 basis-point reduction in the effective tax rate for CBA's banking operations to 26.7%. Tax paid in Malta was $2.3 million - equivalent to a rate of 7.3%, although top-up tax was paid in Australia under that country's controlled foreign country rules, the report stated.
While Malta is supposedly designated a "tax haven" by the Australian tax authorities, its rules and regulations have changed substantially with entry into the EU, and with the drive to 'clean up' offshore financial centres by the OECD in the early part of the decade. Incoming banks are now licensed only under the Banking Act 1994, and with abolition of exchange controls, there now remains little distinction between 'international' and 'local' banks, or between 'offshore' or 'onshore' banks. Foreign banks, which may operate through branches, remain subject to supervision by the Malta Financial Services Authority.
Legislation regarding the supervision of banks and other financial institutions was passed by parliament in November 2010. The new legislation, according to the MFSA "represents an integrated approach to regulation and supervision being provided through a single Authorisation Unit, specialist Supervision Units for Banking, Insurance and Occupational Pensions and Securities and Markets, and a Regulatory Development Unit."